Business Interruption Insurance is one of the most important forms of insurance a business can invest in to protect its future viability. It's about protecting your future cashflow in the event of a major loss.
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What is Business Interruption Insurance?
You are in business to make a profit. It’s crucial that where possible, you're covered against any event which could lead to a sudden and unforeseen reduction in your profit.
Business Interruption Insurance protects your business against unforeseen loss of profits. The main types of insurance policies offering this form of protection include:
Business Interruption Insurance can also be purchased on a stand-alone basis if the above forms of insurance are not right for your business.
Who needs Business Interruption Insurance?
In the event of a major disruption to your business, how long could your business survive? Business Interruption Insurance keeps your business going so it can rebuild and recover to the same position you enjoyed prior to the loss occurring.
Most businesses are exposed to an unforeseen loss of income. The type of events which can lead to a significant loss of income can arise from:
Business Interruption Insurance: what's covered?
The following forms of cover can be incorporated into the design of your Business Interruption Insurance cover:
It is also possible to extend your cover events which affect your customers and / or suppliers premises. For example, if a major suppliers factory burnt down and you suffered a reduction in gross profit as a result, you can extend your Business Interruption Insurance to include their premises as well.
One common mistake is not properly considering the amount of time it will take your business to fully recover from a major loss such as a factory fire. Most businesses will elect to insure their loss of income / profits for a period of 12 months however it is very unlikely a business will be back up and running within this time frame.
As a business, you can elect to insure business interruption up to a 24/36 month indemnity period. When designing your business interruption insurance protection it's crucial you invest the time in properly assessing how long it would take your business to fully recover from a major loss event.
Business Interruption Insurance: what's not covered?
Business Interruption Insurance does not cover:
Business Interruption insurance is generally subject to under-insurance conditions. This means that if you do not insure for 100% of your insurable gross profit, you will be penalised by the amount you have under-insured.
For example, if you have a $1,000,000 in gross profit but you only insure for $500,000 then you will be assessed at being 50% underinsured. This could mean that your sum insured of $500,000 will be penalised by 50% meaning in a total loss situation you would only receive half of your sum insured being $250,000. For a business generating $1,000,000 in Insurable Gross Profit, a $250,000 payout would be considered insufficient to see the business recover from a major loss.
For this reason, it is crucial that business owners consult with a Business Interruption Insurance expert who can assist with approved business interruption calculators which ensure you will be insured for the full amount.
BUSINESS INTERRUPTION INSURANCE
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